UK Government Response to Rise of Inflation in Economy

This report discusses the measures taken by the UK government to control inflation in the economy through interest rates, government expenditure and tax regime changes. It also highlights the impact of inflation on the economy and how it can be mitigated.

The UK
Government
Response to the
Rise of Inflation
within the
Economy.

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4
Books and Journals.................................................................................................................4

INTRODUCTION
Inflation refers to the increase in the price of goods and services and decrease in the
purchasing power of money (Khan and et.al., 2022). In this report it has been explained
that how successfully the government of UK has fight with inflation and some
measures of success within the economy as a result of several policies such as interest
rate, government expenditure and change in tax regime has also been discussed
(Greenwood and Hanke, 2022).
MAIN BODY
The inflation in UK has been constantly rising and in order to deal with the inflation the
government of UK has chosen interest rate as a government policy. The rate of inflation in UK
has been risen by 9.9% in a year. Government of UK has used contractionary monetary policy to
control inflation (Pellegrino, Carbonara and Costantin, 2018). The aim of this policy is to reduce the
supply of money in the economy by increasing the interest rates. The Bank of England is held
responsible for the implementation of the monetary policy. The set of several tools has been used
in order to keep the inflation stable and low. The target of UK government is to reduce inflation
by approx. 2% and to increase base rates and to mitigate the inflationary pressure. The base rate
of Bank of England close to 0.5%. The increased rate of interest means that the buying capacity
of the people is reduced. Due to the higher interest rate the borrowing cost will also increase and
people will start spending less. This will automatically allow the fall in demand of goods and
services which will indicate fall in inflation. The interest rate has much influence on the broader
economy (Chowdhury, 2022).

The analysis of above statistics states that the rate of inflation is constantly rising in UK. The
total inflation of the economy has rose by approx. 9 %. The reason behind surge in inflation is
rising in oil and gas prices, disrupting energy and food supplies and impact on prices due to the
influence of Covid-19. Due to the pandemic several restrictions have been imposed on many
countries and which has created a disruption on the supply chain and which result in high prices
of goods and services as the demand is constantly rising and the supply is limited (Cairney, 2021).
.
CONCLUSION
From the above report, it has been concluded that inflation has affected the economy of UK
adversely and in order to reduce its impact the government of UK has used contractionary
monetary policy to reduce inflation from the economy of UK. The analysis of UK inflation
statistics has also been given in this report.

REFERENCES
Books and Journals
Khan and et.al., 2022. Alternate energy sources and environmental quality: The impact of
inflation dynamics. Gondwana Research, 106, pp.51-63.
Greenwood, J. and Hanke, S.H., 2022. On monetary growth and inflation in leading economies,
2021–22: Relative prices and the overall price level. Economic Affairs, 42(2), pp.288-306.
Pellegrino, R., Carbonara, N. and Costantino, N., 2018. Public guarantees for mitigating interest
rate risk in PPP projects. Built Environment Project and Asset Management.
Chowdhury, M., 2022. Do Interest Rate and Inflation Matter for Exchange Rate Fluctuation in
Bangladesh? An ARDL Approach. Asian Journal of Economics and Empirical Research, 9(2),
pp.67-72.
Cairney, P., 2021. Evidence-informed COVID-19 policy: what problem was the UK Government
trying to solve? In Living with pandemics (pp. 250-260). Edward Elgar Publishing.